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4 Stocks From the Buoyant Retail Discount Store Space
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The outlook for the Retail – Discount Stores industry remains optimistic, driven by a combination of consumer trends, technological innovations and strategic adaptations. With consumers becoming increasingly value-conscious, discount retailers are well-positioned to cater to this demand. The industry's resilience, especially during economic uncertainties, is bolstered by the sector's ability to offer cost-effective products.
Moreover, the integration of advanced technologies like data analytics and artificial intelligence allows retailers to optimize their operations, personalize customer experiences and enhance overall efficiency, ensuring a competitive edge in the market. Additionally, retailers such as Costco Wholesale Corporation (COST - Free Report) , The TJX Companies, Inc. (TJX - Free Report) , Target Corporation (TGT - Free Report) and Ross Stores, Inc. (ROST - Free Report) have been deepening engagements with consumers and adding more compelling products.
About the Industry
The Retail - Discount Stores industry is a significant segment within the retail sector that caters to price-conscious consumers seeking value-for-money products. These stores specialize in offering a wide range of merchandise, including groceries, household items, apparel, electronics, cleaning products, pet supplies and more, at discounted prices compared to traditional retail outlets. Discount stores operate on a low-cost business model, focusing on cost-efficient operations, bulk purchasing, and streamlined supply chains to offer competitive pricing. These stores often carry both national and private-label brands, providing a mix of products to cater to a diverse customer base. The Retail - Discount Stores industry has shown resilience even during economic downturns, as consumers tend to prioritize value-oriented shopping.
4 Key Industry Trends to Watch
Consumers’ Willingness to Spend: The performance of the industry is closely tied to consumers’ purchasing power. Consumer spending, a key catalyst for the economy, has shown resilience despite a tough economic environment. August marked the fifth consecutive month of gains in retail sales. Retail sales in August rose 0.6% sequentially and 2.5% year over year. The backdrop of healthy employment and wage gains has so far bolstered consumer spending. With the holiday season approaching, retailers are all gearing up to walk the extra mile to capitalize on any potential upswing in demand. According to Mastercard SpendingPulse, U.S. retail sales, excluding automotive, are anticipated to increase 3.7% from a year earlier during the traditional holiday period from Nov 1 to Dec 24.
Consumers Seek Better Bargains: The strategy to sell products at discounted prices has helped industry players draw customers in low-to-middle-income groups who have been seeking both value and convenience, particularly in the face of rising prices. Industry participants have been focusing on creating innovative and compelling products and enhancing digital and data analytics capabilities to attract price-sensitive consumers.
Digitization Is the Key to Growth: With the change in consumer shopping patterns, industry participants have been evolving to play dual in-store and online roles. Initiatives, such as building omnichannel, coming up with loyalty and marketing programs, enhancing the supply chain and providing faster delivery options, be it doorstep delivery, curbside pickup or buy online and pick up at the store, are worth mentioning. Simultaneously, companies are investing in renovation, improved checkouts and mobile point-of-sale capabilities to keep stores relevant. Keeping in mind consumers’ product preferences and growing inclination toward online shopping, retailers have been replenishing shelves with in-demand merchandise and ramping up investments in digitization.
Pressure on Margins to Linger: Companies in the industry are vying for a bigger share on attributes such as price, products and speed to market. Further, the increasing dominance of e-commerce players has made the retail discount space highly competitive. This has compelled many players to strengthen their digital ecosystem and boost shipping and delivery capabilities. While these endeavors drive sales, they entail high costs. Apart from these, higher marketing, advertising and other store-related expenses might compress margins. Of late, the industry participants have been dealing with product cost inflation. Nonetheless, companies have been focusing on undertaking initiatives to mitigate cost-related challenges. These include streamlining operational structures, optimizing supply networks and adopting effective pricing policies.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Retail – Discount Stores industry is housed within the broader Zacks Retail – Wholesale sector. The industry currently carries a Zacks Industry Rank #78, which places it in the top 31% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates encouraging near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1. The industry’s position in the top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate.
Looking at the aggregate earnings estimate revisions, it appears that analysts are gaining confidence in this group’s earnings growth potential. Since the beginning of September 2023, the industry’s earnings estimate has risen 2.9%.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry vs. Broader Market
The Zacks Retail – Discount Stores industry has underperformed the broader Retail – Wholesale sector and the Zacks S&P 500 composite over the past year.
Stocks in this industry have collectively increased 3.4%. Meanwhile, the Zacks Retail – Wholesale sector has risen 9.6% and the S&P 500 has rallied 20.5% in the said time frame.
One-Year Price Performance
Industry's Current Valuation
On the basis of a forward 12-month price-to-earnings (P/E) ratio, which is commonly used for valuing retail stocks, the industry is currently trading at 22.94 compared with the S&P 500’s 18.4 and the sector’s 20.13.
Over the last five years, the industry has traded as high as 29.98X and as low as 18.04X, with the median being 23.66X, as the chart below shows.
Price-to-Earnings Ratio (Past 5 Years)
4 Retail Discount Store Stocks to Watch
Ross Stores: Store expansion and strong brand reputation and off-price retail model position Ross Stores for success in the dynamic retail landscape. The company has ambitious goals, aiming to reach at least 2,900 Ross Dress for Less and 700 dd's DISCOUNTS locations over time. By expanding its store network, the company strengthens brand visibility, captures new customer segments and unlocks potential sales growth.
The Zacks Consensus Estimate for Ross Stores’ current financial-year revenues and EPS suggests growth of 7.1% and 19.4%, respectively, from the year-ago reported figure. Impressively, Ross Stores has a trailing four-quarter earnings surprise of 11.4%, on average. Shares of this Zacks Rank #1 (Strong Buy) company have rallied 31.3% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.
Price and Consensus: ROST
The TJX Companies: This Framingham, MA-based company’s flexible off-price business model, store expansion strategies, strong vendor relationship and availability of branded merchandise provide tremendous opportunities to drive sales and traffic. TJX's expansion initiatives and focus on technological integration, including data analytics and e-commerce advancements, underscore its adaptability to evolving market trends.
The TJX Companies has a trailing four-quarter earnings surprise of 6.6%, on average. The Zacks Consensus Estimate for the current financial-year revenues and EPS suggests growth of 7.5% and 19.3%, respectively, from the year-ago reported figure. We note that shares of this Zacks Rank #2 (Buy) company have increased 37.9% in the past year.
Price and Consensus: TJX
Costco: The discount retailer’s growth strategies, better price management and decent membership trends have been contributing to its performance. Cumulatively, these factors have been aiding this Issaquah, WA-based company in registering decent sales numbers. The company's distinctive membership business model and pricing power set it apart from traditional players. We believe a favorable product mix, steady store traffic, pricing strength and strong liquidity should benefit Costco.
Costco has a trailing four-quarter earnings surprise of 2.1%, on average. The Zacks Consensus Estimate for current financial-year revenues and EPS suggests growth of 4.6% and 6.8%, respectively, from the year-ago reported figure. Shares of this Zacks Rank #3 (Hold) company have risen 18.5% in the past year months.
Price and Consensus: COST
Target: This Minneapolis, MN-based company has been making multiple changes to its business model to adapt and stay relevant in the dynamic retail landscape. Target has been deploying resources to enhance omnichannel capabilities, come up with new brands, refurbish stores and expand same-day delivery options to provide customers with a seamless shopping experience. These have been contributing to the top line.
The Zacks Consensus Estimate for Target’s current financial-year EPS suggests growth of 25.9% from the year-ago reported figure. TGT has a trailing four-quarter earnings surprise of 13.3%, on average. We note that shares of this Zacks Rank #3 company have declined 31.5% in the past year.
Price and Consensus: TGT
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4 Stocks From the Buoyant Retail Discount Store Space
The outlook for the Retail – Discount Stores industry remains optimistic, driven by a combination of consumer trends, technological innovations and strategic adaptations. With consumers becoming increasingly value-conscious, discount retailers are well-positioned to cater to this demand. The industry's resilience, especially during economic uncertainties, is bolstered by the sector's ability to offer cost-effective products.
Moreover, the integration of advanced technologies like data analytics and artificial intelligence allows retailers to optimize their operations, personalize customer experiences and enhance overall efficiency, ensuring a competitive edge in the market. Additionally, retailers such as Costco Wholesale Corporation (COST - Free Report) , The TJX Companies, Inc. (TJX - Free Report) , Target Corporation (TGT - Free Report) and Ross Stores, Inc. (ROST - Free Report) have been deepening engagements with consumers and adding more compelling products.
About the Industry
The Retail - Discount Stores industry is a significant segment within the retail sector that caters to price-conscious consumers seeking value-for-money products. These stores specialize in offering a wide range of merchandise, including groceries, household items, apparel, electronics, cleaning products, pet supplies and more, at discounted prices compared to traditional retail outlets. Discount stores operate on a low-cost business model, focusing on cost-efficient operations, bulk purchasing, and streamlined supply chains to offer competitive pricing. These stores often carry both national and private-label brands, providing a mix of products to cater to a diverse customer base. The Retail - Discount Stores industry has shown resilience even during economic downturns, as consumers tend to prioritize value-oriented shopping.
4 Key Industry Trends to Watch
Consumers’ Willingness to Spend: The performance of the industry is closely tied to consumers’ purchasing power. Consumer spending, a key catalyst for the economy, has shown resilience despite a tough economic environment. August marked the fifth consecutive month of gains in retail sales. Retail sales in August rose 0.6% sequentially and 2.5% year over year. The backdrop of healthy employment and wage gains has so far bolstered consumer spending. With the holiday season approaching, retailers are all gearing up to walk the extra mile to capitalize on any potential upswing in demand. According to Mastercard SpendingPulse, U.S. retail sales, excluding automotive, are anticipated to increase 3.7% from a year earlier during the traditional holiday period from Nov 1 to Dec 24.
Consumers Seek Better Bargains: The strategy to sell products at discounted prices has helped industry players draw customers in low-to-middle-income groups who have been seeking both value and convenience, particularly in the face of rising prices. Industry participants have been focusing on creating innovative and compelling products and enhancing digital and data analytics capabilities to attract price-sensitive consumers.
Digitization Is the Key to Growth: With the change in consumer shopping patterns, industry participants have been evolving to play dual in-store and online roles. Initiatives, such as building omnichannel, coming up with loyalty and marketing programs, enhancing the supply chain and providing faster delivery options, be it doorstep delivery, curbside pickup or buy online and pick up at the store, are worth mentioning. Simultaneously, companies are investing in renovation, improved checkouts and mobile point-of-sale capabilities to keep stores relevant. Keeping in mind consumers’ product preferences and growing inclination toward online shopping, retailers have been replenishing shelves with in-demand merchandise and ramping up investments in digitization.
Pressure on Margins to Linger: Companies in the industry are vying for a bigger share on attributes such as price, products and speed to market. Further, the increasing dominance of e-commerce players has made the retail discount space highly competitive. This has compelled many players to strengthen their digital ecosystem and boost shipping and delivery capabilities. While these endeavors drive sales, they entail high costs. Apart from these, higher marketing, advertising and other store-related expenses might compress margins. Of late, the industry participants have been dealing with product cost inflation. Nonetheless, companies have been focusing on undertaking initiatives to mitigate cost-related challenges. These include streamlining operational structures, optimizing supply networks and adopting effective pricing policies.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Retail – Discount Stores industry is housed within the broader Zacks Retail – Wholesale sector. The industry currently carries a Zacks Industry Rank #78, which places it in the top 31% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates encouraging near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1. The industry’s position in the top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate.
Looking at the aggregate earnings estimate revisions, it appears that analysts are gaining confidence in this group’s earnings growth potential. Since the beginning of September 2023, the industry’s earnings estimate has risen 2.9%.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry vs. Broader Market
The Zacks Retail – Discount Stores industry has underperformed the broader Retail – Wholesale sector and the Zacks S&P 500 composite over the past year.
Stocks in this industry have collectively increased 3.4%. Meanwhile, the Zacks Retail – Wholesale sector has risen 9.6% and the S&P 500 has rallied 20.5% in the said time frame.
One-Year Price Performance
Industry's Current Valuation
On the basis of a forward 12-month price-to-earnings (P/E) ratio, which is commonly used for valuing retail stocks, the industry is currently trading at 22.94 compared with the S&P 500’s 18.4 and the sector’s 20.13.
Over the last five years, the industry has traded as high as 29.98X and as low as 18.04X, with the median being 23.66X, as the chart below shows.
Price-to-Earnings Ratio (Past 5 Years)
4 Retail Discount Store Stocks to Watch
Ross Stores: Store expansion and strong brand reputation and off-price retail model position Ross Stores for success in the dynamic retail landscape. The company has ambitious goals, aiming to reach at least 2,900 Ross Dress for Less and 700 dd's DISCOUNTS locations over time. By expanding its store network, the company strengthens brand visibility, captures new customer segments and unlocks potential sales growth.
The Zacks Consensus Estimate for Ross Stores’ current financial-year revenues and EPS suggests growth of 7.1% and 19.4%, respectively, from the year-ago reported figure. Impressively, Ross Stores has a trailing four-quarter earnings surprise of 11.4%, on average. Shares of this Zacks Rank #1 (Strong Buy) company have rallied 31.3% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.
Price and Consensus: ROST
The TJX Companies: This Framingham, MA-based company’s flexible off-price business model, store expansion strategies, strong vendor relationship and availability of branded merchandise provide tremendous opportunities to drive sales and traffic. TJX's expansion initiatives and focus on technological integration, including data analytics and e-commerce advancements, underscore its adaptability to evolving market trends.
The TJX Companies has a trailing four-quarter earnings surprise of 6.6%, on average. The Zacks Consensus Estimate for the current financial-year revenues and EPS suggests growth of 7.5% and 19.3%, respectively, from the year-ago reported figure. We note that shares of this Zacks Rank #2 (Buy) company have increased 37.9% in the past year.
Price and Consensus: TJX
Costco: The discount retailer’s growth strategies, better price management and decent membership trends have been contributing to its performance. Cumulatively, these factors have been aiding this Issaquah, WA-based company in registering decent sales numbers. The company's distinctive membership business model and pricing power set it apart from traditional players. We believe a favorable product mix, steady store traffic, pricing strength and strong liquidity should benefit Costco.
Costco has a trailing four-quarter earnings surprise of 2.1%, on average. The Zacks Consensus Estimate for current financial-year revenues and EPS suggests growth of 4.6% and 6.8%, respectively, from the year-ago reported figure. Shares of this Zacks Rank #3 (Hold) company have risen 18.5% in the past year months.
Price and Consensus: COST
Target: This Minneapolis, MN-based company has been making multiple changes to its business model to adapt and stay relevant in the dynamic retail landscape. Target has been deploying resources to enhance omnichannel capabilities, come up with new brands, refurbish stores and expand same-day delivery options to provide customers with a seamless shopping experience. These have been contributing to the top line.
The Zacks Consensus Estimate for Target’s current financial-year EPS suggests growth of 25.9% from the year-ago reported figure. TGT has a trailing four-quarter earnings surprise of 13.3%, on average. We note that shares of this Zacks Rank #3 company have declined 31.5% in the past year.
Price and Consensus: TGT